May 24, 2010

Tragicomedy of the Commons

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I had always assumed that the clutter in my parent’s kitchen was governed by a tragedy of the commons.  But I’ve decided over the last few visits that this may not be the case.  After a few whirlwind attempts to sort everything in the kitchen into some ergonomically efficient order, my parents demanded that I cease and desist, refusing to free ride off of my voluntary labor!* Sometimes clutter has an efficiency all of its own, I suppose.

*My own free riding, of course, has continued without interruption.

said Wallace Forman @ 8:43 PM. Comments (1)

May 21, 2010

Cato Public Speaking Worshop

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The Cato interns had a public speaking workshop today.  Each intern was asked to give a four minute speech on a non-frivolous topic.  I chose to speak on the difficulty of moderate health care reform:

People often accuse libertarians of being radical idealogues, of abstracting a generally appropriate principle of freedom to unacceptable extremes.  Hayek complained in the Road to Serfdom that, “Probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all the principle of laissez faire.”  Practical, reasonable people will shy away from extremes.  But often there is no middle ground between defending ones principles and abandoning them completely

This, I suggest, is what many people discover when they try to compromise in health care policy.  The Patient Protection and Affordable Care Act, otherwise known as “Obamacare” contains 5 important provisions

  • Subsidies for the poor
  • An individual mandate to buy insurance
  • Community Rating for premiums
  • Guaranteed Issue of insurance
  • The pre-existing conditions fix

To many practical, reasonable people, this program all together looks like a serious government invasion of the health care sector.  The individual mandate is an obvious affront to freedom and subsidies may seem to unjustly redistribute wealth.  But many people would like to compromise and pick the most carefully targeted of the five previous reforms.  They will likely pick the pre-existing conditions fix.

Insurers usually refuse to cover illnesses that began before a person purchased his insurance – so called pre-existing conditions.  This creates a serious problem for the uninsured sick.  Many illnesses, such as cancer, require extremely expensive treatment. Most people cannot pay for treatment on their own, and if they are not treated, the illness will kill them.  The fix, forcing insurers to cover pre-existing conditions, seems like a narrowly targeted reform that will help the neediest people without significantly infringing on the liberties of others.

But once insurers are forced to cover pre-existing conditions they will change their behavior.  Instead of selling sick people insurance only for future illnesses, they will refuse to sell them insurance at all.  So a reasonable legislator trying to pass a targeted fix must pass a second reform – Guaranteed Issue.  This reform forces insurers to “guarantee” that they will offer to sell insurance to anyone who asks for it.

This still does not fix the problem.  Insurers may simply offer sick people insurance at premiums they can’t afford – say, $10 million dollars a year.  If legislators are unwilling to allow the uninsured sick to simply remain uninsured, they must lower prices.  So they must support community rating, which forces insurers to sell insurance to all comers at the same price.

Now, legislators have passed drastic reforms that will affect all people – this is not merely targeted legislation affecting only the uninsured sick.  But they still cannot stop here.  There is a new problem that must be solved.  If the community rating is passed, healthy people know they will be able to purchase insurance at the average rate of the insurance.  They will drop out of the market, and only sick people will remain.  The price of insurance will rise.

To prevent people from “gaming the system” legislators must pass the individual mandate – which forces the healthy back into the market with everyone else.  Although each of the previous reforms limited freedom, an individual mandate does so in a much more conspicuous way.  And it isn’t the end.

If you order people to buy insurance, you must decide how to treat the poor.  It is unreasonable to order people with no income to pay premiums of thousands of dollars a year.  The health care of poor people must be paid for, either by programs like Medicaid, or by subsidies of private insurance purchases.

The reasonable person who insists on helping the uninsured sick finds himself forced to embrace the whole set of reforms.  This has been hard to understand for people as highly placed as Barack Obama, who attacked Hillary Clinton for including an individual mandate in her health care plan in the Presidential primary campaign before adopting it himself.  And it was probably hard to understand for Mitt Romney and The Heritage Foundation when they tried to craft a middle ground in Massachusetts and ended up with a nearly identical bill.  And it may still be hard for Republicans to understand, some of whom have already promised not to overturn the pre-existing conditions fix, and I predict therefore, will not – and cannot – overturn any of the legislation. Sometimes, there is no middle ground, and compromise is more harmful than a radical defense of principle in extreme circumstances.

said Wallace Forman @ 2:05 PM. Comments (0)

May 1, 2010

Ending the Federal Government

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The Cato interns had an op-ed writing competition this week.  I wrote about Puerto Rican independence and its positive implications for regulatory competition.  Congratulations to contest winners Peter Antosh, Hans Lango, and Josh Tomalin.  My op-ed submission follows:

Destroy the Fed

By Wallace Forman

“Government,” says Bastiat, “is that fiction in which everybody strives to live at the expense of everybody else.” The United States Congress is no different.  Each state sends a few representatives to Washington to brawl for taxes – collected nationally – to disburse in their home districts. The system is roughly described in game theory as the Prisoner’s Dilemma.  Puerto Ricans are now being asked whether they want to play.  Hopefully, they will vote no – twice.

H.R. 2499, the Puerto Rico Democracy Act, authorizes two non-binding plebiscites.  A first referendum polls whether the island’s inhabitants wish to remain an unincorporated territory of the United States.  If a majority votes no, a second referendum is held asking whether the island should become a state, autonomous, or fully independent.

Conservatives argue convincingly that the later vote is rigged to produce false majority support for statehood. The options for autonomy and independence may split the separatist camp. And because the second referendum includes no option for continuing the status quo, Puerto Ricans who prefer a close relationship with the US must vote for statehood. The Heritage Foundation’s Hans von Spakovsky says that the bill is “designed to create millions of new votes at a time when certain political actors [i.e. Democrats] fear their election prospects are diminishing.” [UPDATE: Reviewing the legislation, I find this not to be true.  The status quo remains an option in the second plebiscite.  This does not affect my larger argument.] Put this way, who cares?  Whether Democrats or Republicans rule Washington, Congress will continue to pass bad laws.

In the Prisoner’s Dilemma, cops convince two criminals to rat on each other by offering a lighter sentence to the one who testifies first.  Although the criminals would be better off as a pair if they kept quiet, each one knows that he personally benefits from squealing. Both talk, and both go to jail.

In Washington, legislators and lobbyists stand in for the law-breakers.  Each single congressman is powerless to stop the others from spending the tax-dollars of his constituents – all he can do is appropriate as much money to his own district as possible. Thousands of interest groups add to the chaos by lobbying for special regulations and subsidies. Each interest gains from its own special rent, but not as much as it loses from the rest of the lobbying. The more that is taken from the common pot, the smaller it shrinks.

It doesn’t have to be this way. There is a simple way out of the Prisoner’s Dilemma – not playing in the first place. If Puerto Ricans vote for full independence, they can help start an entirely different game.

When all people live together under one government, they may vote to live at the each others expense. But as the number of countries increases, the power of each shrinks. A state cannot tax foreigners, and if it regulates its own citizens too harshly, they will emigrate. As productive citizens leave, the state loses their tax revenues and has less to offer those who remain. Voters must balance the impulse to rob each other with the need to attract wealthy citizens from other nations. States will compete to offer only laws with real value – even the social safety net must look like one that voters really want beneath them.

The problem with the United States is not too much government, but too few. North America contains only three countries, all massive.  Emigrants from the US have to travel huge distances if they wish to leave.  Between the dearth of alternatives nearby and language barriers outside of the country, Congress knows its subjects will stay put. Why should we let the federal government keep a monopoly on regulatory authority, when the 48 continental states can offer it at competitive prices?

An independent Puerto Rico will not deliver regulatory competition to North America by itself.  But it has the power to remind Americans that no government is a holy and unbreakable union. Separatist movements continue to bring greater freedom worldwide – recently in the Baltic, former Yugoslavia, East Timor, and elsewhere. Other movements remain important in major countries like Canada, China, and Spain. Alaska elected a Governor from the secessionist Alaskan Independence Party Governor as recently as 1990. Legislators from Hawaii continue to push for native autonomy in that state.

There is a chance, however slim, that independence in Puerto Rico could help revive independence movements in the United States themselves. If it comes to a referendum, the island should vote for full separation.  An independent Puerto Rico is a small step toward a better world with more choices and no federal government. It is a vote for freedom – theirs and ours.

said Wallace Forman @ 1:52 PM. Comments (0)